FIRST SEMESTER SESSION 2019/2020

A192 BWBB3053
MARKETING FINANCIAL SERVICES
(GROUP B)

GROUP ASSIGNMENT :
Case Study

SUBMITTED TO: Dr. ZUNARNI BINTI KOSIM

PREPARED BY:
Bil Name Matric No
1. Suriyaa Naathan a/l M.Arjunan 252967
2. Monyshaa Balamurali 253669
3. Nurathirah bt kamaruddin 258996
4. Badrul Nazran bin Nazar 263866
5. Nur Tasneem Bt Mohd Zin 259018
1) What aspects of Chinese history, cultural and contemporary demographics
would a western financial services organization need to be aware of before
contemplating entry into the Chinese market for financial services?
2) If you were a western credit card issuing bank, what aspects of these Chinese
attitudes towards consumption and savings would you need to consider if you
were thinking of entering the Chinese market with this product?

If we were a western credit card issuing bank, the aspects of Chinese attitudes towards
consumption and savings is when they were likely focused to achieve their target. For
example, when China initiated its early reform in the late 1970s, it focused on
manufacturing as the key growth driver for the company. This has resulted in
manufacturing currently having a 52% share of GDP in China, compared with 15% for
agriculture and 33% for services. Much of the investment in manufacturing was financed
by the saving of the increasingly employed Chinese population. China’s savings rate had
increased from about 35% in the mid-1960s to 34% in 1980s and around 45% in
2006.Whilst the export-led drive continues fuel the growth of manufacturing sector, the
Chinese government is now attempting to also encourage domestic consumption to
achieve further development of the economy because the Chinese government realizes
that reform is required but China is still many years away from an independent and
market-driven financial system.

Besides that, China is rapidly transforming itself from an exporter to voracious

consumer nation to further fuel is rapid growth. As the new ‘superpower’ in Asia , China
is set to join the United States as one of the main drivers of world economic growth.
China’s manufacturing prowess, its supply of relatively cheap labor and its currency still
at what many feels is and artificially low rate result in complaints that its competitors are
all handicapped in the global export market. As a western credit card issuing bank, we
need to be really flexible to adapt on changes that suits with China’s market.

Some foreign entrance for credit card has tried to enter the market for financial
services in China. One product area where foreign banks are already active in China and
where much activity is forecasted once the Chinese market is fully open is in the plastic
payment card market particularly the credit card. The attitudes of Chinese follow the
historical cultural and structural impediments that confront those seeking to introduce the
revolving credit card product into China and on the creation of China Union Pay (CUP)
as an alternative to the existing international acceptance marques of MasterCard and Visa.
Credit cards should be adapted or standardize to meet the needs of Chinese consumers.
This was based on the conceptual idea that product and services of high status and value
need to be delivered in China in an unadapt manner. This also called ‘secured ‘credit
card.

Next as Chinese consumption patterns change and financial services become more
complex, individuals and business are increasingly conducting payments and settlements
through their banks. As example the growth sector in the labour force is the white collar
segment which creates a lifestyle which can call upon the use of credit to finance
consumptions. To confront a changing external environment, banks in China have
adopted lower interest rate policies and therefore faced pressure on interest income. The
near completion of interest rate liberalisation, a decline in shadow banking, and weak
loan demand have all contributed to difficult market conditions for commercial banks in
2015. One solution to this problem is to strengthen retail banking models to relieve the
dependence on interest income and open up non interest businesses.

3) How would an understanding of the concept of Guanxi help western financial

services organizations better understand their prospect in the Chinese market?

Chinese consumer prefer to borrow through ‘informal’ channels, such as family

members, relatives and friends, either at very low or even no interest rate. This type of
borrowing relies on the Chinese view of relationship which is known as Guanxi. This can
be described as personal relationship or connections with other people and its
fundamental base is created through pre-existing relationships. Hence, in China everyone
has Guanxi with a certain number of people and once they belong to this social network,
they perceive each other as ‘insider’ and other people as ‘outsider’. The relationship
between insider and outsider is very important. Thus, if an outsider wants to determine
Guanxi with another network, the foremost effective way is to urge a third-party
intermediary involved to effect an introduction and thus construct a new Guanxi
relationship. Together with trust, good interaction encourages business partners to have
open communication and to promote information-sharing behaviours. Guanxi exchange is
predicted on social norms of obligation and reciprocity, and others need to respect these
norms in order to stay xinyong (trust system) and avoid losing face. Therefore guanxi
improve interpersonal trust.
Financial services performance is one of the most important indicators of business
performance. This includes sales growth, net profits growth, cost savings, and so forth.
Cost decreases can be achieved by transaction cost savings, information research savings,
and resource research savings. Long-term orientations can increase relationship quality
and, together with controlled behaviours in guanxi relationships, have a positive effect on
financial performance. In addition, through guanxi networks, more business opportunities
for financial resources will open for exchange partners. And through the access of key
information about market trends and the cooperative behaviours with business partners,
companies will find out about real-time market changes and be able to quickly respond.
Such agility supplement a company’s financial services performance, especially sales
growth.

These networks can have a direct impact on conducting business in China, including
opportunity market expansion and supply chain performance. Maintaining open
'bureaucratic relationships' can also help businesses set up with minimum delays. But it
can also bring challenges. Western financial services organizations might understandably
struggle to integrate guanxi into their business practices. The key is to remain diligent and
be aware that the reciprocal nature of guanxi also dictates an informal obligation to 'return
the favour'.

The opportunity is that although relationship development with Chinese customers is

complicate, it is only way forward to obtain trust and repeat the business, eventually
cross-sell opportunities and good referrals to other potential customers. This is because
not only does such trust help retain existing customers and broaden the relationship to that
customer’s own network under the concept of Guanxi. The challenge for new entrant, is
how to achieve a ‘critical mass’ with whom they have no existing Guanxi relationships.
The favoured approach to date has been to form partnerships/alliances with existing
Chinese financial institutions, who already have Guanxi relationships with their
relationships with their customers, and to then use these as the third-party intermediary to
introduce type of activity to an existing customer base.